What is SaaS?

Software as a service (SaaS) is a cloud-based software delivery model in which the cloud provider develops and maintains cloud application software, provides automatic software updates, and makes software available to its customers via the internet on a pay-as-you-go basis. The cloud provider manages all the hardware, middleware, application software, and security. So SaaS customers can dramatically lower costs; deploy, scale, and upgrade business solutions more quickly than maintaining on-premises systems and software; and predict total cost of ownership with greater accuracy.

In the early 2000s, the first generation of SaaS solutions was siloed, inflexible, and designed to solve a single business problem. Since then, SaaS has evolved dramatically. Today, a modern cloud suite can span—and connect—everything from financials, human resources, procurement, and supply-chain processes to commerce, marketing, sales, and service solutions. Other benefits of a modern, complete SaaS solution include:

Connected, end-to-end business processes built-in

Ease of configuration and personalization

Rapid data portability

Comprehensive cloud security

Embedded analytics

Support for emerging technologies, from artificial intelligence (AI) to chatbots, Internet of Things (IoT), and more

The Origins of SaaS

In the 1960s, mainframe computers were connected to dumb terminals that shared the mainframe’s software—a software delivery system known as time-sharing. As the cost of computers began to fall in the 1980s, many businesses created their own local version of time-sharing, which was called a local-area network (LAN). However, the business (not the technology provider) was responsible for supplying and managing the hardware and network.

With the advent of the internet in the 1990s, providers began hosting software and making it available to customers via the internet. This forerunner of SaaS, called the application service provider (ASP) model, had serious limitations, however. For example, each customer required their own version of the software, which meant they had to install some software on users’ computers. Configuration was costly and time-consuming.

SaaS Is Born

The first SaaS solutions emerged in the late 1990s, when the term SaaS was originally coined. This new model delivered much greater efficiencies than the ASP model. A single instance of the application could serve multiple users and even customers, thanks to its so-called multitenant architecture. Local installation of software was no longer required. And it provided a way to collect, aggregate, and centralize valuable application data.

While the delivery model has remained constant since the early 2000s, SaaS has evolved significantly from first-generation siloed solutions to modern SaaS suites that enable high visibility across the business and can extend the power of SaaS through emerging technologies such as IoT, AI, chatbots, digital assistants, and blockchain.

Business Benefits of SaaS

From its inception, the SaaS model was designed to deliver a core set of business benefits:

Rapid deployment

On-demand scalability

Scale instantly to meet growing data or transactional demands

Reduce disruptions while maintaining service levels

Beyond the Baseline: SaaS as a Platform for Innovation

While cost reduction and IT efficiency drove the development of first-generation SaaS solutions, modern SaaS solutions have become platforms for innovation to meet the competitive challenges of the digital age, such as

The power of small. Cloud, mobile, and social are enabling small and startup enterprises to create innovative products and reach markets with unprecedented speed

The age of consumer discontent. Armed with mobile and social, consumers have more choices and more information than ever before

In response to these competitive challenges, a modern SaaS suite can drive innovation across the business by supporting faster innovation, providing superior customer experiences, and enabling better business decisions with built-in analytics and a holistic view of the business.

Modern SaaS Suite Capabilities

Connected, cross-business solutions

Connect and optimize cross-departmental business processes

Gain a holistic view of your entire business

Faster, more flexible update paths

Access new capabilities as soon as they become available

Choose to update at the speed of your business, not on a provider’s timetable

Faster innovation leveraging emerging technologies

Innovate quickly across the entire value chain with AI, IoT, blockchain, chatbots, and other emerging technologies

A Single SaaS Suite of Applications, Built for the Cloud

Some SaaS providers simply move their on-premises software to the cloud and call it SaaS. This model has its drawbacks and does not take full advantage of the cloud delivery model. In fact, you may end up with many of the same limitations as with on-premises solutions, including significant support bills, high IT-related overhead costs due to the same slow upgrade process, and disconnected systems—all of which reduce innovation and agility in your business.

However, a SaaS suite engineered from the ground-up for the cloud can provide:

Rapid access to innovations. Because innovation is so critical in the digital age, businesses want to take advantage of the latest capabilities. SaaS engineered for the cloud speeds innovation cycles and gives you faster access to the latest innovations. By contrast, the on-premises in-the-cloud SaaS model requires you to wait for innovations because of the longer development cycles typical of on-premises solutions.

Six Questions to Ask SaaS Providers

Does the provider offer only siloed applications, or a complete suite of applications?

There is inherent cost and complexity when working with multiple providers, including data integrity, increased security risks, and greater complexity in executing software upgrades. Ideally, you want all your applications fully connected in order to support end-to-end business processes—without complex, expensive integrations that may fail to work after the next upgrade.

It is faster, easier, and more sustainable to work with one SaaS provider that can develop and manage all business process software for you. After all, you’re interested in running your business, not managing software upgrades and many providers.

How will the provider support a holistic view of my business?

Sharing the same accurate data between applications and business departments across your entire business can give you a more accurate, holistic view and produce better business outcomes. A complete, connected suite will enable you to view accurate business results in real-time.

Chances are, you now have multiple cloud providers and solutions for your business, from HR and finance to CRM and supply chain. If so, you risk operating with data silos. Complicating matters, you may choose to house some data on premises or in a private cloud for regulatory or governance reasons. Finally, you may require relevant third-party data in order to compete with other businesses in real time.

If any of these is the case, consider choosing a SaaS provider that makes it as easy as possible to do away with data silos and brings all these solutions and data sources together easily, so you can gain a holistic view of your business and innovate faster than the competition.

Will I pay only for what I need?

Despite the advantages of a suite, you may not want or need every available application right away. Yet some cloud providers require you to buy more than you will ever use. Consider instead a provider that enables you to grow your SaaS ecosystem incrementally, while still providing the power of a connected suite as you grow into it.

Before investing, evaluate your business needs, realistically assess how much change your organization can digest at one time, and determine whether you currently have solutions that you will continue to use, even if you adopt duplicate solutions in a larger suite.

How much is the provider investing in R&D? Will your solution be future-proof?

While SaaS provides much more flexibility than traditional application delivery, you will still incur costs and complexity if you decide to migrate to a new provider. As a result, you want to consider where both you and your SaaS provider are heading in the coming years.

Ask cloud providers about their strategic direction, product roadmaps, and how they are investing to achieve results for you. Do they now offer, or are they planning to offer, capabilities like adaptive intelligence, fully embedded real-time analytics, data as a service (DaaS), and a proven and trusted multilayered approach to cloud security?

Does the provider develop and design security into every layer of the stack?

Security is a major concern for businesses adopting SaaS solutions. However, with the right SaaS provider, you can actually increase your security posture—if the provider continuously develops and delivers security innovations.

Multilayered security that safeguards data, from the physical security of data centers all the way up the stack to the application layer

How does the provider support data integrity and portability?

Over the lifetime of your relationship with a SaaS provider, there will be times when you need to extract data from the SaaS provider, for example, if you decide to migrate to a new solution or want to share that data with on-premises, private cloud, or third-party SaaS solutions.

Ask the provider how quickly and securely you can extract that data. Beware of some proprietary data formats that entail significant egress costs (the time and expense of translating data into a form usable by another solution).

The Future of SaaS

Market experts agree that the future of SaaS is strong. According to a 2017 Gartner report, sales of SaaS solutions will continue to grow at nearly 20 percent per year, from US$39 billion in 2016 to US$76 billion by 2020. Innovation in the SaaS solutions themselves is expected to help drive that growth.

AI. While still relatively new, AI is expected to become an increasingly baked-in part of enterprise SaaS applications, including adaptive intelligence (which learns and adapts to user data and behavior).

Autonomous IT management. AI and machine learning will also play vital roles in driving more autonomous, less human-reliant management across the IT stack.

Chatbots, IoT, and blockchain. Each of these technologies is increasingly vital to digital innovation and forward-thinking providers are already finding ways to offer them in their SaaS offerings.

Vertical depth and horizontal connectedness. While SaaS began as a way to quickly provide vertical solutions to a single department, businesses increasingly need and expect cross-business visibility as well. Look for more vertical depth from providers offering cross-business suites as well as more APIs and turnkey integrations for hybrid solutions.